Monday, March 03, 2014

Competition and Cooperation

“The Invisible Hand is the expression
used, among other
things, to describe the phenomenon that even though the private
economy is split up into lots of smaller organisations, some co-operating and
some competing, when you look at it as a whole, it looks as
if it had been deliberately organised that way to achieve a reasonably
near-optimum level of output, employment, profits etc. (in the absence of state
intervention and natural or government-granted monopolies and so on). So the Honda car you bought
from the Honda showroom was not really built and sold to you by one huge
organisation called "Honda". There is an endless chain of
sub-contractors, suppliers, franchisees and so on. For some reason, things tend to work slightly better this way, if there
are lots of smaller enterprises, each focussed on doing one or two things
really well. Now if the entire Somerset Levels were owned by a single
landowner, it seems likely that he would
have looked after his own interests by dredging rivers, digging more
channels, keeping certain areas forested, leaving marshy bits at the edge of
rivers, building his buildings on stilts or on higher ground (or whatever it is
that he would do) and so on. But the Levels are owned by 1,000 farmers with an
average of 170 acres each (source).
Each of them is trying to get as much out of his little bit as possible, so the
farmers on higher ground chop down their trees; the ones near the river want to
use all the land rather than leave it fallow; if your farm is on low lying
ground, that's where you'll build your buildings; I'm not aware that they all
chip in to a common fund to dredge rivers. UPDATE:
they do have Drainage Rates actually, see comments. And so things go
wrong, and when things go wrong, they all start whining that it is the
government's responsibility. I suppose it is true that the government absolved
them of this responsibility and then messed up, but all the same, it illustrates the general observation that once it
comes to land ownership, The Invisible Hand simply does not function (which in
turn suggests that land ownership is the result of state intervention or a
monopoly situation). See the related topic of retail mix
control. A large part of the reason for the demise of "The
Traditional High Street" is precisely because they are divided up into
tiny units, each owned by a different
people, and there is no incentive to co-ordinate and co-operate to get the best
overall use.”

Comment

Mark is a little economical with Adam Smith’s actual thinking.I suggest respectively that he poses
co-ordination efficiency as a contest of states versus markets, when in
fact history shows they were complementary and ever present. This complementary
process was a staggered emergence from post-hunter-gatherer societies and the
evolution of the division of labour and property, in which collective band and
tribal cultures, including local languages, emerged over many tens of
millennia.This evolutionary
process was not universally in step and is still continuing, as anthropology
science shows.

Adam Smith surmised that the very long process of human societal
evolution roughly conformed to a four-stadia over-lapping sequence of
hunter-gathering, shepherding, farming, and, “at last”, commerce.(Smith “LJ”, 1762-3). He also noted
that the entire social sequence was dominated by the universal importance of
human “exchange”, that is“The necessary, though very slow and gradual
consequence of a certain propensity in human nature which has in view no such
extensive utility; the propensity to truck, barter, and exchange one
thing for another.

Whether this
propensity be one of those original principles in human nature, of which no
further account can be given; or whether, as seems more probable, it be the
necessary consequence of the faculties of reason and speech, it belongs not to our
present subject to enquire.It
is common to all men” (Smith “WN”, 1776.)

This is paragraph is
of considerable significance to the “cooperating-competing” axis raised by Mark
Wadsworth that “when you look at it as a whole, it looks as if it had been deliberately
organised that way to achieve a reasonably near-optimum level of output,
employment, profits etc. (in the absence of state intervention and natural or
government-granted monopolies and so on).”The
phrase “deliberately arranged” is worrying because it applies some extra-human
entity deliberately intervening in human social evolution.

Experiences such
as in Honda operation’s are not uncommon and have not been non-existence
throughout history.It is typical
of the evolution of exchange almost from deep history.Smith gave an example in the
manufacture of the common labourers’ woolen coat in WN.The supply chain extended beyond
immediate neighbourhoods internationally abroad.Much of this activity was evolutionary and unintentional,
even accidental.There is no
semblance of anything like “deliberate” intention and certainly nothing worthy
of the simile metaphor of“as if”
it is deliberately arranged”.

Mark slips up on
facts but thankfully owns up that “they do have Drainage Rates” but he reveals his attachment if in the negative
to the modern myth of an “Invisible Hand” this that “in this case [it] simply
does not function”.

Lastly, Mark makes an extraordinary claim that if “High Street
businesses are “Divided up into tiny units, each owned by a different people, and there is no incentive to
co-ordinate and co-operate to get the best overall use.”

Leaving aside my usual comments on the “invisible hand” (scroll down earlier
posts” for details), Mark is up against experience of how competitive major and
minor firms “co-ordinate and co-operate”
on a permanent and continuing basis on matters of their shared common
interests, such as common services they pay for and receive from landlords,
local and national governments and which they are obliged to pay for or
implement. I have consulted professionally for both sides of such transactions
(not at the same time!).

I
also recommend Mark reads Daniel B. Klein’s “Knowledge and Coordination”
Cambridge University, 2013, for an appreciation of just how significant
coordination is for dynamically competitive market economics.Without combined competition and
coordination markets work less dynamically and, in the extreme, severely
stagnate